Thu, Feb 09, 2023 @ 11:54 GMT
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G7 To Support Global Minimum Tax Rate

Market movers today

  • Today we will listen carefully when French central bank governor Villeroy speaks on future ECB monetary policy at our Nordic Summit.
  • We will also look out for German ifo numbers taking another leap higher as the ZEW index indicates.
  • We expect the central bank of Hungary to keep rates unchanged at a policy meeting this afternoon.
  • Early tomorrow morning, we expect the Reserve bank of New Zealand to do the same.

The 60 second overview

Global minimum corporate tax: Officials representing the G7 countries have negotiated in recent weeks on an accord paving the way for a final agreement on a global minimum tax rate later this year (note the G7 countries have no formal role in the decision-making process). Last week the Biden administration lowered its demand to an upcoming deal from a minimum of 21% to 15% in order to gather more support from the 139 countries currently negotiating at the OECD/G20 level. The G7 finance ministers will meet in 10 days in person after which a final accord could be sealed at the Cornwall summit from 11-13 June.

Fed and inflation: Yesterday Fed officials once again played down the risk of high inflation prints being more than transitory. Governor Lael Brainard said that she still has not seen longer-term inflation expectations rise substantially and that if they did the Fed had the tools to affect those. Atlanta Fed President Raphael Bostic said that higher price levels do not seem to be “enduring”.

Benchmark reform: Libor rates are gradually being phased out these years, and in the U.S. regulators are promoting the SOFR (Secured Overnight Financing Rate) as a replacement to USD Libor. However, lately, a range of other benchmark rates have seen the light of days such as the Bloomberg Short Term Bank Yield (BSBY) and the Ameribor. Common for the alternative benchmarks is an element of credit risk which is largely non-existing in the SOFR. A myriad of new benchmark rates could complicate the phasing out process of Libor.

Equities: Equities were mostly higher in a very uneventful Monday session, and after finishing mostly lower last week. Growth was back in style, extending last week’s outperformance. Small caps beat large caps and cyclical outperformed defensives. Tech and communication services were the standouts, while utilities and health care lagged. In the US, S&P closed up 1.0%, Dow 0.6%, S&P 500 1%, Nasdaq 1.5% and Russell 2000 underperforming at 0.6%. Asian markets are solidly higher this morning, with tech in focus and China leading the gains. US futures also point to another green opening and Nasdaq futures are outperforming.

FI: With most of Europe out yesterday the EGBs were primarily just moving sideways, with a minor rally in the afternoon, closing around 1bp lower of Friday’s close. The ECB PEPP net purchases last week was at EUR21.7bn (4.3bn/day), which points to a continuation of the rather mechanical implementation of the PEPP buying from ECB. We expect this to continue heading into the ECB meeting in two weeks. US curves bull flattened yesterday.

FX: EUR rose vis-à-vis USD, GBP and JPY yesterday. EUR/USD climbed above 1.22, EUR/GBP touched 0.865, and EUR/JPY 133.

Credit: Only very subdued moves in credit since Thursday. iTraxx Xover has tightened 1bp (to 257bp) and Main is unchanged at 52bp. Both HY and IG bonds are marginally tighter than Thursday.

Nordic macro and markets

The Danish Ministry of Finance yesterday published the updated financing need for 2021. The net financing need was revised up DKK42bn for the whole year to DKK54bn despite an improvement in first four months of around DKK20bn. The higher financing needs mainly reflects a continuation of the government’s lockdown-related corporate liquidity facilities.

 

Danske Bank
Danske Bankhttp://www.danskebank.com/danskeresearch
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